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U.S. Service Sector Activity Up : ETFs in Focus

The Institute for Supply Management’s (ISM) non-manufacturing index reflected acceleration in service activity in the U.S. This led to a rally in the greenback.

The ISM non-manufacturing PMI came up with a reading of 60.1 in October 2017 compared with 59.8 in September. This was above economists’ expectations of a reading of 58 for October. A reading above 50 indicates expansion.

Services PMI in Detail

Per Daily Mail, educational services and entertainment and recreation were the only industries among the 18 surveyed, which contracted. Growth of new orders decelerated, as the new orders index fell to 62.8 in October compared with 63 in September, while order backlogs declined to 53.5 from 56 in September. Export orders on the other hand improved to 60 from 56 in September.

There was an increase in the ISM employment sub-index, as it increased to 57.5 in October compared with 56.8 in the previous month. However, changes in U.S. non-farm payrolls were positive as it reflected the largest gain since July 2016. Although 261,000 new positions were created in October compared with expectations of 310,000, the number still shows gradual improvement from hurricane-related headwinds. The jobless rate stood at 4.1%.

Economic Data

GDP increased 3% annually in the July-September period compared with a 3.1% increase in the third quarter. Also, it surpassed expectations of a 2.5% increase (read: 5 ETFs to Soar After Solid Q3 GDP Data).

The Federal Reserve left its benchmark interest rate steady in the October meeting, but the markets widely expect the Fed to hike rates in December. Per the CME Fed watch tool, there is a 96.7% chance of a rate hike by 25 basis points. President Donald Trump announced that Federal Reserve Governor Jerome Powell would be replacing Janet Yellen as the Fed chair when her term expires in February 2018. The markets widely anticipated this move and expect stability as Powell is seen as a dovish lead, who will not steer much from current policy (read: December Rate Hike May Boost These ETFs).

Let us now discuss a few ETFs focused on providing exposure to U.S. equities.

This fund is the most popular ETF traded in the U.S. markets. It seeks to provide exposure to the largest and most stable companies and tracks the S&P 500 index.

It has AUM of $253.2 billion and charges a fee of 9 basis points a year. From a sector look, the fund has high exposures to Information Technology, Financials and Health Care with 24.5%, 14.8% and 14.0% allocation, respectively (as of Nov 2, 2017). The fund’s top three holdings are Apple Inc AAPL, Microsoft Corporation MSFT and Amazon.com Inc AMZN with 3.9%, 2.9% and 2.0% allocation, respectively (as of Nov 2, 2017). The fund has returned 23.9% in a year and 15.6% year to date (as of Nov 3, 2017). It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

This fund is a low-cost ETF that seeks to provide exposure to the large established U.S. companies and tracks the S&P 500 index.

It has AUM of $134.3 billion and charges a fee of 4 basis points a year. From a sector look, the fund has high exposures to Information Technology, Financials and Health Care with 24.5%, 14.7% and 14.0% allocation, respectively (as of Nov 3, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Amazon.com Inc with 3.9%, 2.9% and 2.0% allocation, respectively (as of Nov 2, 2017). The fund has returned 24.1% in a year and 15.6% year to date (as of Nov 3, 2017). It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

This fund is a popular ETF that maintains a hefty exposure to U.S. tech companies and tracks the Nasdaq 100 index.

It has AUM of $56.8 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposures to Information Technology, Consumer Discretionary and Health Care with 61.6%, 20.6% and 10.3% allocation, respectively (as of Nov 3, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation, and Amazon.com Inc with 12.4%, 9.0% and 7.4% allocation, respectively (as of Nov 3, 2017). The fund has returned 34.9% in the last one year and 29.4% year to date (as of Nov 3, 2017). It has a Zacks ETF Rank #2 with a Medium risk outlook.

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